A week before Christmas, an important report appeared on a Wisconsin government website. There were no press releases from Madison politicians. No headline news stories.
Yet no public official, taxpayer or citizen can afford to ignore the report’s bottom line: According to its just-released financial statements, state government closed its 2008-09 books with a $2.71 billion deficit in its general fund.
To many readers, this might come as a surprise. By law, state government is supposed to balance its budget. On paper, it does. However, for more than a decade, governors and legislators of both parties have “balanced” budgets through use of accounting maneuvers, timing delays, borrowing, and billions in one-time money.
When the state controller, a CPA, prepares the state’s official financial statements, he must follow generally accepted accounting principles, or GAAP. That means he must reverse the budget gimmicks and accurately represent the state’s true financial condition. When he does this, the budget’s black ink turns red.
What does this mean in everyday terms? Suppose you use your credit card to buy a new living room set. You take it home; the kids, their friends, and your pets make active use of it.
Credit card or no credit card, according to the state controller – who must follow accounting rules – you spent money. However, that is not the way the folks under Madison’s Capitol dome see it. The living room furniture might be well used, but they don’t budget the money until the credit card bill has to be paid.
Now, some state officials who have practiced politics full-time will try to reassure us by saying: “There’s no real problem; it’s just the recession.”
True, this year’s deficit is the largest ever reported. But it is the fifth consecutive year that the GAAP shortfall exceeded $2 billion and the ninth that it has topped $1 billion. We have not had a recession every year since the late 1990s. This recession didn’t really get underway until early 2008.
Even more troubling than the size of the deficit is its trend. Since 1999, the shortfall has grown in every year except one: $830 million in fiscal 1999, $1.21 billion in 2000, $1.48 billion in 2001, $2.24 billion in 2002, $1.93 billion in 2004, $2.12 billion in 2005, $2.15 billion in 2006, $2.44 billion in 2007, $2.50 billion in 2008, and now, $2.71 billion in 2008-09.
“No need to worry. Other states are in worse shape,” career legislators will tell us.
Hmmm. We don’t yet know how other states’ 2008-09 deficits will compare with our $2.71 billion hole. But we do know what states reported in 2007-08. Wisconsin had a deficit of $2.50 billion. Three other states were in the red, according to their statements: California ($4.17 billion), Illinois ($3.93 billion), and Maine ($0.24 billion).
The problem with this comparison is that it ignores the relative size of states. California has 36.8 million people; Illinois, 12.9 million. Wisconsin has only 5.6 million residents. When 2007-08 deficits are compared on a per capita basis, the Badger State had the largest GAAP deficit in the nation ($445 per person), followed by Illinois ($305), Maine ($181), and California ($113).
Figures like these led the Pew Trusts recently to name Wisconsin one of 10 states most in “fiscal peril.” The news made headlines around the state. Of the states listed, however, only California, Illinois and Wisconsin reported GAAP deficits last year. Pew said California “was in a league of its own.” Yet it is worth noting that Wisconsin’s deficit per capita was four times larger than California’s.
Todd Berry, Ph.D., has been president of the Wisconsin Taxpayers Alliance (WISTAX) since 1994. Founded in 1932, WISTAX is a nonprofit, nonpartisan public policy research organization dedicated to teaching and informing Wisconsin citizens, public officials, and the press about our government.